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What The Music Industry Can Learn From The Beer Industry

Over the next few weeks I will be writing a series of posts that illustrate what lessons the music business can heed from other industries. This is the first of these posts. Beer sales have been in steady decline for many years with the big brewers coming to terms with changing consumption habits of consumers and the impact of disruptive new models. Sound familiar? The dynamics of the beer industry bear remarkable similarity to the recorded music business and there are some lessons that can be learned. Beer sales have been declining since 2008 with the core baby boomer consumer base changing consumption habits and drinking more hard liquor and wine. In the UK the amount of beer drunk has fallen by 20% over the last 10 years while US beer sales have been falling since 2008. The number of new breweries went into decline and after years of acquisitions and mergers the bigger-than-ever brewers started to feel the pinch. Again the parallels are clear.

The Rise Of Craft Beers

Against this doom laden backdrop there has been a standout good news story: craft brewing and micro breweries. Predominately small independent brewers this market segment has been growing strongly, albeit from a small base, in the last few years. Craft beer sales in the US grew by 10% in 2012, 17% in 2013 and 18% in 2014. In fact 2014 was the year that craft beers broke through to double digit market share (11%) for the first ever time. Craft beers are catering for a market of discerning drinkers, whether they be hipsters or real ale purists, who are willing to pay more for quality and uniqueness. Craft beer is like the music industry’s indie sector and vinyl sales rolled into one.

Big Brewers Get In On The Act

What gets interesting is that the big brewers are realising that if you can’t beat them then you need to join them. So the craft beer growth is not just down to plucky little cottage industries but also the big brewers opening their own micro breweries and creating their own craft ales. In fact some mid sized brewers have gone one step further and stopped producing their own mainstream beer brands, instead having them brewed on license by the big brewers, allowing them to focus on craft ales. The margins on an increasingly commoditised market simply don’t add up unless you can bring vast scale to bear. So the similarities are clear. But there are differences in all this too. I was careful to emphasise that craft beer is like an amalgamation of vinyl and indie. It is both a product strategy pivot and a business culture pivot. What the beer industry is realising is that while there remains a mainstream majority that will continue to drink mainstream beers, the economics of that sector are challenged which means that it is hard to bear the effect of even modest negative trends. The beer industry hasn’t gone out and started finding its equivalent of playing live and selling t-shirts, instead it has looked at how to reinvent its core product to make it relevant to the new generation of its most valuable customers. And the effects are beginning to be felt at a market level. Beer consumption actually grew by 1% in 2014 in the UK and US sales were up 0.5%.

Reinvent The Product Not Just The Sales Channel

This is what needs to happen with recorded music, not just reinventing the sales and acquisition channel (which is fundamentally what the entire history of digital music sales has been about). The beer aficionado and the music aficionado are more important to their respective industries now than they have ever been and this will only increase. The beer industry is dragging itself out of recession by super serving its super fans. Artists have been doing the same for years with the likes of PledgeMusic, BandPage and now Paetron. Now it is time for the labels and music services to do the same by working together to create a new generation of music products, such as that I laid out the vision for here. But this must also be part of a cultural shift, from treating the artist as employee to that of an agency – client relationship, a model that many label services and indie labels are already pursuing. Of course the recorded music industry has to grapple with other extenuating factors such as the contagion of free and competition for spend from live. But even with these considerations, it is clear that music industry now needs to find its craft beer.

The main distinction is, I don’t have Beerify, where I am forced to listen to advertisements in exchange for 30 minutes of beer drinking at a go, or the Beer Bay, where I may go drink beer for free, as long as I’m willing to take one down and pass it around to my neighbors. Nor is there Beerdora, where I am given shot sized glasses of different beers every few minutes, and the people brewing those beers are paid $0.0001/shot.

Going Indie is all well and good, especially if you’re Indie, but the problem is that the money has to be made somewhere, and unless people are PAYING for that beer/music, the industry must contract. Brands/bands die when nobody is paying for it.

tell me, if you can, how would a beer maker compete with a fellow who is giving away beer for free? because that’s what sites like youtube and pandora and spotify and all of the rest of them are doing to the music industry. why buy beer, craft or otherwise if you can get the same product for free?

Brilliant observations. It does not matter what you do, if your customers do not pay, you go out of business. Google/Youtube and Pandora are making billions of dollars off of artists content and doing everything they can to avoid compensating those artists. Their business model is to make themselves rich while paying as absolutely little as possible to those who provide the very content that allows them to make billions of dollars.

The tech industries had vested interests in the deceptive notion that “Information just wants to be free”. Recordable CD’s and other data storage devices are of little value, if you do not have a substantial amount of data to store on them. Nobody needs a 128 gigabyte thumb drive if they do not have gigabytes of data to put on that thumb drive. Where did that data come from? Who created it? and are they being fairly and legally compensated for that data are and never were questions that the tech industry had and still has vested interests in not being asked or answered.

The beer analogy is in some sense a very good one. Despite the assertions otherwise, beer has not become less popular, what the major corporate breweries are losing in sales, the Craft Breweries are gaining. Unfortunately this is where that analogy breaks down. Coming up with a Craft Brewery version of music does the artists no good, if their customer’s continue to believe that the product should be free, or that they have a right to give that product away freely to their 1 million closest friends.

Moreover, as so many artists are learning, the notion of “Live” is not as financially lucrative as those proclaiming “Information just wants to be free” suggest when they discover that only a very small percentage of those actually willing to pay $70.00 or $80.00 per show to see someone they have never heard of, or only seen one or two youtube video’s of, will actually buy a CD at that show.

As anyone who has ever recorded a CD knows, the cost of recording a CD is enormous. For new artists, or artists without a very substantial fan base, it can be beyond crippling. Which is why record companies even exist in the first place. Its both profoundly expensive and a tremendous risk. Some artists will become the Sam Adams or Stone Breweries of Music, but their individual success will not necessarily translate to anyone else.

Lets face reality, if you are an artist, currently there is no one out there but you who has your best interest in mind.

Good article. I’ve been asking a number of friends, both musicians and non-musician listeners, questions intended to separate the Product from the delivery Channel. One fairly common bit of feedback I get from those that consider themselves “really into listening to music” is this (my own words summarizing theirs):

“If I could login to something like iTunes, and benefit from that existing convenience as far as finding and then purchasing music, but instead of getting some lower resolution music file get a higher resolution file along with all of the liner notes, cover art and other extras I miss from the good old vinyl days, I’d gladly pay $$$ for that.”

That could be the “new Product”, high res audio files coupled with other goodies like art, liner notes, etc, so the discerning customer basically gets the best of the download, CD and old vinyl record worlds combined.

Durandal and K – I full recognise that free is the elephant in the room which is why I included the closing statement: “Of course the recorded music industry has to grapple with other extenuating factors such as the contagion of free”. No industry has exactly the same dynamics – if they did they would be the same industry. The purpose of this post is to identify lessons that can be learned from other industries.

John Powers – I think you may be missing the point – I am not arguing in favour of free, simply being part of the equation, I am not advocating free, I am simply making a statement of market reality. Free (radio) has always been part of the equation and since Napster its reach has become far wider. The challenge to compete with free is to be better than it.

Reblogged this on http://www.Sozialgeschnatter.de and commented:
Interesting food (drink) for thought:
● The dynamics of the beer industry bear remarkable similarity to the recorded music business and there are some lessons that can be learned.
● Craft beer is like the music industry’s indie sector and vinyl sales rolled into one.
● The beer aficionado and the music aficionado are more important to their respective industries now than they have ever been and this will only increase.